China May Ban New Coal-Fired Power

Smoke rises from a chimney at a coal chemical factory in Huaibei, east China's Anhui province, Aug. 14, 2013.

AFP

China's government is reportedly considering a ban on building new coal-fired power plants, a move that could have significant effects on pollution, energy use, and jobs in the declining coal industry.

On Oct. 10, a key environmental adviser told the Sydney Morning Herald that officials have been discussing a cap on coal-fired generating capacity under the next planning period for 2016 through 2020.

"Now, we are just talking about this in the new five-year plan—whether we go to zero new coal-fired power plants," said Jiang Kejun, research professor at the Energy Research Institute of the National Development and Reform Commission (NDRC) planning agency.

The ruling Communist Party of China's (CPC) Central Committee is meeting in Beijing this week to agree on the agenda for the 13th Five-Year Plan and set new economic targets.

The government has previously announced caps on coal production for five-year planning purposes, but this is believed to be the first time that a ban on new coal-fired generation would come into play.

Barring new plants could remove a major source of consumption growth for high-polluting coal in the future, forcing power companies to meet demand with cleaner sources like renewables and natural gas.

Forced to move quickly

"That is a pretty strong measure," said Mikkal Herberg, energy security research director at the Seattle-based National Bureau of Asian Research.

Herberg believes a ban is more likely to come closer to the end of the next five-year period than the beginning because power demand will continue to grow. But a cap could still be significant.

"I think the air quality problem is forcing them to move extremely fast on this," he said.

China burned 1.37 billion metric tons of coal for power last year, or nearly 40 percent of its coal consumption.

The country uses as much coal as the rest of the world combined, making its electricity generation a primary source of pollution and emissions of global warming gas.

While the growth of power consumption has slowed dramatically, China has continued to build new coal-fired plants.

Utilization rates drop

Last year, China added 47 gigawatts (GW) of new thermal, mostly coal-fired, capacity, or 45 percent of new generation, despite big increases in contributions from wind, solar, and hydropower.

Coal accounted for about two-thirds of the capacity total, according to official figures compiled by Reuters. So far this year, China has been adding new thermal capacity at the rate of 3.75 GW a month.

But capacity utilization rates at thermal plants have dropped sharply despite slumping coal prices, due to a slowing economy, gains in hydropower and renewables, and dispatch preferences for cleaner fuels.

Last year, thermal capacity utilization sagged to a record low of 53.7 percent, Reuters said.

The combination of factors suggests that the business of building new coal-fired plants could someday wither on the vine, even without a government ban.

"They will automatically stop," Jiang is reported as saying. "There is no market, they are dying," he said.

Continued push to build

One reason for the continued push for now to build new plants is that some of China's biggest coal producers jumped into the generation business during the industrial boom to diversify revenues in the days when coal prices were state-controlled.

A ban on new coal-fired generation could break that linkage, which may have prolonged the capacity expansion past the point where it was environmentally acceptable.

"The power of these combined coal-power companies is partly what has slowed down movement as fast in this direction as the government might want," said Herberg.

"These are politically powerful entities that employ hundreds of thousands of workers," he said.

In September, the largest northeast coal producer, Heilongjiang Longmay Mining Holding Group, announced plans to cut 100,000 jobs from its workforce of 240,000 within three months, the official English-language China Daily reported.

The company lost about 5 billion yuan (U.S. $788 million) last year.

While a freeze on new coal-fired projects may be painful, it has been seen as long overdue.

Consumption falls

"To me, it looks like a case of closing the gate after the horse has bolted," said Philip Andrews-Speed, a China energy expert at National University of Singapore.

"If a ban on coal-fired power stations had been brought in three years ago, it would have displayed real policy intent and had a useful effect," Andrews-Speed said in an email message.

"With massive apparent overcapacity, the ban can be introduced with little opposition, not least because the world is awash with natural gas," he said.

In a Radio Free Asia interview in January 2013, Andrews- Speed warned that power surpluses were "almost a certainty" after generating capacity outpaced production in 2012.

Capacity has grown by over 20 percent since then.

Power consumption so far this year has risen by only 0.8 percent, the National Energy Administration (NEA) reported, raising questions about whether the slowdown is permanent or cyclical.

The low utilization of power plants may be seen as an effect of the chronic overcapacity of China's energy- intensive industries, including steel, cement, glass, and chemicals.

In the first nine months, power consumption in heavy industry fell 1.5 percent, the NEA said.

Another cycle?

China last halted power projects following the Asian currency crisis in 1998, only to suffer a wave of shortages when demand surged with the economic boom in 2003.

Generating capacity nearly doubled between 2005 and 2010 with plans to double it again by 2020.

China may be going through another cycle, but there are also signs that fundamental change will affect the growth of demand when it recovers this time.

During the industrial and building boom, power consumption rose faster than gross domestic product (GDP) growth, climbing at double-digit rates in some years, said Herberg.

But with the declining growth in energy-intensive heavy industry and the rise of the service sector, power demand can be expected to grow less than GDP, perhaps at 4 to 5 percent annually, he said.

The smaller increases may be met with new generation from renewables, nuclear projects and natural gas, limiting the need for more coal-fired plants, Herberg said.